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Spring 2005


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Feature   |  Spring 2005

The road ahead

Indiana's campaign to carve a niche in a changing economy

It doesn't take a rocket scientist—or a labor economist—to realize that job losses are bad news for Indiana on a number of fronts. In one way or another, nearly every citizen of Indiana has felt the impact of the more than 120,000 jobs lost in the state over the past four years.

Job losses affect families, empty nesters, singles and the elderly. The loss of a job removes the safety net of a steady income and benefits like health insurance and retirement plans. Losing a job can also take away a person's pride and confidence, and can bring about feelings of anger, hopelessness or depression.

The loss of jobs creates more demand for social services, but, with fewer people earning a taxable income, there is less tax revenue to pay for additional assistance or even basics, such as road repairs, education and emergency personnel. Key to shoring up the state's future is an understanding of the global forces that are changing the course of our economy.

Image: Larry DeBoer

Indiana must keep its core industries strong as well as import new businesses to compete in a global economy, according to agricultural economist Larry DeBoer. The state lost thousands of jobs due to outsourcing and downsizing. (Photo by Tom Campbell)

Trickle-down effects

“The kind of job losses that we've seen in Indiana over the past few years reflects a nationwide trend,” says agricultural economist Larry DeBoer. Several factors at the global scale are driving the movement, including the fluctuating oil market; economic growth in China, India and other countries; outsourcing of service and manufacturing jobs; and advances in technology. These are just some of the side effects of globalization and participation in the worldwide economy that eventually trickle down to the citizens of Indiana.

“Oil price increases drive up the costs of gasoline, heating oil, propane and diesel production, and each of these factors will affect people here and throughout the United States,” says Wally Tyner, professor of agricultural economics and an expert in energy economics and trade policy. “If you're spending $50 a month more on gasoline or your heating bill, that's $50 less you're spending on clothes, food, entertainment and all the other goods and services that we produce in the economy. In this way, higher oil prices are a drag on economic growth.”

Oil prices are a good example of the integration of national and international politics and economics.“ Iraq 's oil supply is disrupted, Venezuela has had supply disruptions, Nigeria has political problems, and the hurricanes last fall disrupted the U.S. supply in the Gulf of Mexico,” Tyner says. “No matter where you look, there is no stability in supply, and that leads to higher prices.”

Perhaps the biggest determinant of oil prices is China, whose booming economy has been consuming more and more of global output.“ China's economy has been growing by 10 percent a year, ” Tyner says. “That's huge. I don't think people understand that if China grows by 10 percent, then U.S. oil is more expensive. Forty percent of the increase in global oil demand the past year came from China, and pressure like that drives up the price for everyone.”

Growth in China isn't all bad for the U.S. economy, though. China purchased about 10 percent of all U.S. agricultural exports in 2004, making it the fourth largest buyer of domestic ag products. This, too, trickled down to the Indiana economy.“ Indiana's total agricultural exports reached $2 billion for 2004,” says agricultural economist Chris Hurt. “If Indiana sent 10 percent of its agricultural exports to China, then about $200 million came back to the state.”



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